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Help & Advice

Are you making the most of the Tax Allowances available to you?

You may not even have heard of the Marriage Transfer Allowance, however if you are married or in a civil partnership and your income is under £11,500 and your partner’s income is between £11,501 and £45,000, then you could be eligible! You can even apply if you are currently receiving a pension, or if you live abroad (as long as you still receive a personal allowance).

It works by allowing you to transfer £1,150 (for 2017/2018) of your personal allowance to your husband, wife, or civil partner (as long as they earn more than you). This means that their tax could be reduced by up to £230 for the tax year (6th April – 5th April).

Only just hearing about this but you were eligible last year? Not to worry, you can backdate your claim and reduce this year’s tax.

You can apply for the Marriage Transfer Allowance on the HMRC website, or if you prefer you could ring and apply over the phone. If your claim is successful then changes to your Personal Allowances will be backdated to the 6th April, the claim will then stay active for following years until your circumstances change, should this be a change in income resulting in you no longer being eligible, or through divorce or death. Any change in your circumstances should be reported to HMRC as they can they advise you as to whether your claim can stay active, or if it should be cancelled.

HM Revenue and Customs will allocate your partner part of your Personal Allowance by either changing their tax code to allow for their extra relief, and it will usually end with an ‘M’ (this is not done instantly and can take up to 2 months), or they will allocate it when your partner submits their Self Assessment for the year.

What's changed in the tax world 16/17

The start of the new tax year brings a raft of changes that have consequences for your personal finances.

And with so much change afoot, it can be difficult keeping up with what's going on.

To make things a little easier to digest, here's a list of the major changes you simply can't afford to ignore.

The tax-free personal allowance is going up: This is the amount of money you are allowed to earn before income tax becomes payable. It's rising to £11,000, up from £10,600. It will rise again to £11,500 the following year - on 6 April 2017. Think of any increase in the personal allowance as a pay rise!

The 40p tax threshold will rise too: The amount of money you can earn before having to pay the higher-rate of income tax (40 per cent) increases to £43,000. This is an improvement from £42,385 in the 2015/16 year. It will rise again in April 2017 to £45,000 and the Government says it is committed to raising it further, to £50,000 by 2020.

The marriage allowance is improving (slightly): from £1,060 to £1,100. This means lower earners are able to transfer £1,100 of their tax-free personal allowance to their partner therefore reducing their tax bill.

To benefit, you need to have an income of £11,000 (the new personal allowance) or less and your partner must be a basic-rate taxpayer whose income is between £11,001 and £43,000.

You must transfer £1,100 exactly - not more or less.

HM Revenue and Customs gives your partner the extra allowance by changing their tax code (usually to 1166M, which can take up to two months) or when they send their self-assessment tax return if they’re self-employed.

You can apply for the marriage allowance and find more information here.

Property tax

Stamp duty is going up for landlords and those buying second homes: They will face a 3 per cent surcharge on the existing price bands from 1 April 2016. (See the box opposite for the full list of charges.)

Wear and tear allowance is going: The allowance allowed landlords to offset 10 per cent of their rental income against tax for maintenance, regardless of whether they carried out any repairs or not. From April 2016, they will only be able to claim for maintenance they can prove has taken place. That means that careful record keeping of receipts and invoices is essential. The government says the measure will have effect for expenditure incurred on or after 1 April 2016 for corporation tax payers and 6 April 2016 for income tax payers. This applies to all residential lets, furnished or not but not to Furnished Holiday Lets or Rent a Room relief

Savings

Personal savings allowance launches: From 6 April, individuals with taxable income of between £17,000 and £43,000 a year will be eligible for a £1,000 tax-free allowance, meaning they can earn up to £1,000 per year in savings income without paying a penny of tax. Higher-rate taxpayers who have taxable income of between £43,001 and £150,000 will also receive an allowance, but it is capped at the lower amount of £500 per year.

You usually pay tax if your pension pots are worth more than the lifetime allowance. This is currently £1.25 million, but will be reduced to £1 million from 6 April 2016.

The rate of tax you pay on pension savings above your lifetime allowance depends on how the money is paid to you. The rate is 55 per cent if you get it as a lump sum and 25 per cent if you get it any other way.

Tapered annual allowance: The size of the annual allowance will be gradually reduced from £40,000 to £10,000 for those making between £150,000 and £210,000 a year.

National insurance 'contracting out' to end:From 6 April, individuals will no longer be able to contract out of the additional state pension (also known as second State Pension or SERPs). It allowed those paying into a company pension scheme (usually a defined benefit scheme) to pay a reduced rate of national insurance or have it paid into a private pension.

The end of contracting out means those who previously qualified for a reduced rate by way of a 1.4 per cent rebate will pay more national insurance.

You can tell if you’re contracted by checking a recent payslip and looking at the national insurance line. If you’re contracted out if it has the letter D, E, L, N or O next to it. You’re not contracted out if it has the letter A.

Investing

New dividend tax allowance: This is also brand new and will affect all individuals in receipt of dividends, either from a company as part of a remuneration strategy or from investments that are not held within an ISA or pension.

Dividend tax credit rules replaced with a tax-free allowance: which entitles all individuals to the first £5,000 of income from dividends each tax year free from taxation.

Dividends over this level will be subject to tax and for basic-rate taxpayers this will be 7.5 per cent, higher-rate taxpayers will pay 32.5 per cent and additional-rate taxpayers will pay 38.1 per cent.

Remember that you no longer need to ‘gross up’ dividends before putting them onto your return

Childcare

Tax-Free Childcare scheme:From early 2017, working parents can get up to £2,000 a year, per child, in tax relief to help cover childcare costs. It replaces the existing system that sees parents buy 'childcare vouchers' from their employer that enable each parent to pay for childcare worth up to £243 a month.

Each £243 voucher costs the parent £165.24. For higher-rate taxpayers who can only buy vouchers of £124, the cost is £71.92. For additional-rate taxpayers, their £110 voucher costs £58.30. Each parent can sign up to the voucher scheme (as long as their employer offers it).

However, once the new scheme comes in, you won’t be able to sign up to both schemes. If you're in the old one, you don’t have to switch over. But once you’ve moved to the new one, you won’t be able to move back again.

As always if you have enjoyed this blog post and found it informative then please use the buttons to ‘like’ it (and us!) in all the relevant places. Please feel free to use the buttons to share to your Social Media

If you have any questions then please get in touch

And please be aware that this is ‘general’ information designed to give you a quick overview and this information may not apply to everyone in every circumstance so please do you own due diligence or take professional advice and do not rely on the information in this blog post

Top Tips for Last Minute Tax Returns

So it’s that time of year once again where we are really quickly approaching the Self Assessment filing deadline of 31st January. Despite all of our best intentions there are still some of us that haven’t filed our returns. In fact there’s still some of us that haven’t even got the paperwork out to have a look! There is one thing that you can be certain of.. when you actually bite the bullet and ‘do’ your return it won’t be as bad as you expected, so come on, get it done. Don’t be one of the estimated 870,000 people that were late last year, got fined £100 and helped HMRC receive a massive £87 million pound overnight windfall in late filing penalties.

If you’re one of the smug people that got organised and filed early congratulations, this blog isn’t for you but I’d say still read it as you may find some good tips for next years return or you may realise that you need to amend your return (sorry but you might!)

This blog is all about the biggest ‘things’ we’ve seen with tax returns this year, the things that our clients have struggled the most with, the things that have caught them out and the things that they have asked us questions about..

Government Gateway Login and Password

This is a biggie and it catches people out EVERY year. We always get a few panicked phone calls from people that have got their information ready to file but can’t find their log in details and haven’t got time to request copies as they are sent through the post and can take 7 days to arrive.

So.. dig out your login details NOW. Even if you haven’t got your information ready to file, just log in and check that everything is working. If it isn’t you still have time to receive the information from HMRC through the post.

Own Consumption

With so many people in our area running B&B’s, Guest Houses, Pubs, Nursing Homes etc.. own consumption is a question that is raised quite frequently.

If you take items from stock for your own consumption then you must make an adjustment for this. If for example you run a pub and you drink a pint of beer then you must make an adjustment for your ‘own consumption’ of basically what is a business asset. And the jaw dropper is that this adjustment must be at the selling price (Yes, the price that you charge your customers) and not your cost price.

There is also ‘own consumption’ of your utilities and other items that need to be taken into account. For instance if you live above the pub or in the guest house then a proportion of your ‘bills’ are actually for your own consumption. Now HMRC have some fixed rates for making these adjustments for the industries above, sometimes these work out well but you can use actual figures but only if you have kept good and accurate records.

Private Use

You must make adjustments for Private Use of vehicles. If you use your vehicle personally and for business then you need to ‘disallow’ a proportion of your running costs. You also need to disallow a proportion of your Capital Allowance Claim (Ask us – that’s not something I can explain in a paragraph!)

Use of Home

If you are self employed and you work from home then you can claim for costs that are incurred for business purposes. In addition to that you can also claim for a ‘proportion’ of the cost of running your home. These costs include your utilities (heat, light and water), insurance, council tax, rent and it also includes repairs to your house and your rent. If you own the property then you can include mortgage interest (not the capital repayment part).

HMRC do have fixed rates that you can use, currently that is £208 per year and this is for minor use of your home for business. There are also flat /fixed rates for use of home that are based on the number of hours that you work at home ‘wholly and exclusively’ for the purposes of the trade. 25-50 hours per month you can claim £10 per month, 51-100 hours £18 per month and 101+ hours £26 per month.

The full calculation to work it out the actual proportion can be quite complicated. It basically looks at the number of rooms in your house and the percentage that is used for business and the amount of time that you spend working on your business in your house and gives you a percentage of your home running costs that you can claim for.

Whilst this calculation is more difficult than just putting a flat rate number in the correct box we often see that it is really worth your while to take the time to do it.

Estimates

You may be able to use estimates if some of your figures aren’t available but you need to make sure that you tell HMRC that you have used estimates/provisional figures by ticking the right box on your tax return. You do need to be careful doing this as there is a high risk of penalties for not following the rules.

White Space

There’s more and more ‘white space’ on Tax Returns these days and we constantly get asked what they are for! Yes, they are there so that you can give HMRC more details about the numbers on your return.

You should be very careful about what you write in these boxes. We’ve seen some cracking comments full of humour but you need to keep it factual. Whatever you write in these boxes is actually considered to be part of your tax return and you are liable for a penalty if any of the information is incorrect.. Exactly the same as if you put an incorrect number in one of the boxes

Losses

Don’t forget that brought forward losses can be used. Sideways relief is available, for instance if you make a loss on one activity and a profit on another then you may be able to set one off against another. Likewise you may be able to carry back losses for 3 years and get a refund on tax that you paid in previous years if you are in the first 4 years of trading.

Don’t forget though that there is a Sideways Relief ‘Cap’ of £50,000 (don’t stop reading here as the next bit is important!) OR 25% of adjusted net income of a Sole Trader.

And finally don’t forget about any Capital Losses that you may be carrying forwards. It’s easy to do so as you don’t use them until a relevant Capital Gain occurs

As always if you have enjoyed this blog post and found it informative then please use the buttons to ‘like’ it (and us!) in all the relevant places. Please feel free to use the buttons to share to your Social Media

If you have any questions then please get in touch

And please be aware that this is ‘general’ information designed to give you a quick overview and this information may not apply to everyone in every circumstance so please do your own due diligence or take professional advice and do not rely on it